US Economic Data Impacting The Forex Market – Part 2

In the previous part, you read about the types of data released and how they affect currency pairs. Some US economic data points that impact the forex market are:

Industrial Production (IP): U.S. production activity is measured in terms of the IP index. When the economy is doing well, there is an increase in production activity. However, if production increases more than 82%-85% and starts moving towards 100%, overproduction occurs, which then leads to inflation due to over-exploitation of raw materials and over utilization of man power. Over exploitation of raw materials leads to a fall in their supply which ultimately drives their prices up. Also, over utilization of human resources is possible through extra monetary and non-monetary benefits for workers.

Extra labor prices and increase in the price of raw materials will drive production costs in an upward direction, leading to increases in selling costs. Expensive products drive inflation upward.
Consumer Indices: Just as there are production indices on the supply side, there are consumer indexes on the demand side. These measure the demand side inflation.

The following are the four main consumer indices:
• Consumer Price Index (CPI): The CPI measures the value of goods and services bought and paid by consumers. A CPI increase is related to a rise in inflation, as consumers buying more would signify an abnormal increase in their purchasing power, which would then lead to inflation because too much money will be chasing too few goods.

• Consumer Confidence Index (CCI): This is a survey released by the University of Michigan and underlines confidence of consumers in the US economy. A higher CCI signifies better consumer confidence about the future performance of the economy, which drives the value of US dollar in an upward direction.

• Retail Sales: This is the principal indicator of consumer spending across all goods and services. A strong retail sales number indicates encouraging increase in the purchasing power of citizens, signifying the well being of an economy.
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